Question 1

If the exchange rate for Canadian and U.S.dollars is 0.7382 to $1,this implies that 2 Canadian dollars can be purchased for $1.48 U.S.dollars.

Accepted Answer

To convert Canadian dollars to U.S. dollars using the exchange rate of 0.7382 to 1, we multiply the amount of Canadian dollars by the exchange rate. Therefore, if we want to know how much U.S. dollars we can get for 2 Canadian dollars, we would multiply 2 by 0.7382, which gives us $1.4764. This is slightly less than $1.48, but it still confirms that option A is true.

Question 2

Multinational corporations can be U.S.companies with operations in other countries.

Accepted Answer

Multinational corporations are defined as companies with operations in multiple countries, and this can include U.S. companies with overseas operations.

Question 3

The currency in which a company presents its financial statements is known as the:
A)Multinational currency
B)Price-level-adjusted currency
C)Specific currency
D)Reporting currency
E)Historical cost currency

Accepted Answer

The currency in which a company presents its financial statements is known as the reporting currency. This is the currency that the company uses to report its financial performance to its stakeholders, including investors, analysts, and regulators. The reporting currency is typically the domestic currency of the company, but can also be a foreign currency if the company operates in multiple countries.

Question 4

If a U.S.Company's credit sale to an international customer allows payment to be made in a foreign currency,the same exchange rate must be used for the date of sale and the cash payment date.

Accepted Answer

The exchange rate used for the date of sale and the cash payment date may not be the same due to fluctuations in the foreign exchange market.

Question 5

Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound.At the year-end balance sheet date,the exchange rate increased to $2.76.If the liability is still unpaid at that time,Kreighton must record a:
A)gain of $39,500.
B)loss of $39,500.
C)gain of $138,000.
D)loss of $138,000.
E)neither a gain nor loss.

Accepted Answer

The increase in the exchange rate from $1.97 to $2.76 per British pound means Kreighton will have to pay more dollars to settle the same £50,000 liability. Initially, the liability was $98,500 (£50,000 * $1.97). At the new exchange rate, it becomes $138,000 (£50,000 * $2.76). The difference, $39,500 ($138,000 - $98,500), is a loss because it represents an increase in the dollar amount required to settle the liability.

Question 6

If a U.S.company's credit sale to an international customer allows payment to be made in a foreign currency,the sale transaction is recorded using the exchange rate on the date of sale.

Accepted Answer

When a U.S. company allows payment to be made in a foreign currency for a credit sale to an international customer, the sale transaction is recorded using the exchange rate on the date of sale. This is because the exchange rate on the date of sale determines the value of the foreign currency at that specific moment in time.

Question 7

The price of one currency stated in terms of another currency is called a foreign exchange rate.

Accepted Answer

This is the definition of a foreign exchange rate.

Question 8

All of the following statements relating to accounting for international operations are true except:
A)Foreign exchange gains or losses can occur when accounting for international sales transactions.
B)Gains and losses from foreign exchange transactions are accumulated in the Fair Value Adjustment Account and are reported on the balance sheet.
C)Gains and losses from foreign exchange transactions are accumulated in the Foreign Exchange Gain (or Loss)account.
D)The balance in the Foreign Exchange Gain (or Loss)account is reported on the income statement.
E)Foreign exchange gains or losses can occur when accounting for international purchases transactions.

Accepted Answer

Gains and losses from foreign exchange transactions are typically not accumulated in the Fair Value Adjustment Account. Instead, they are recorded in specific accounts related to foreign exchange gains or losses and are reflected in the income statement, not directly on the balance sheet as a fair value adjustment.

Question 9

If the exchange rate for Canadian and U.S.dollars is 0.82777 to 1,this implies that 3 Canadian dollars will buy ________ worth of U.S.dollars.
A)$0.2759
B)$0.82777
C)$1.82777
D)$2.48
E)$1.00

Accepted Answer

To find out how much U.S. dollars 3 Canadian dollars can buy, we need to multiply 3 by the exchange rate.
3 x 0.82777 = $2.48. 
Therefore, the answer is D.

Question 10

The price of one currency stated in terms of another currency is called a(n):
A)Foreign exchange rate
B)Currency transaction
C)Historical exchange rate
D)International conversion rate
E)Currency rate

Accepted Answer

The price of one currency stated in terms of another currency is known as a foreign exchange rate.

Question 11

On November 12,Higgins,Inc.,a U.S.Company,sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen.The exchange rate was $0.00837 per yen on the date of sale.On December 31,when Higgins prepared its financial statements,the exchange rate was $0.00843.Kagome paid in full on January 12,when the exchange rate was $0.00861.On December 31,Higgins should prepare the following journal entry:
A)Debit Sales $90; credit Foreign Exchange Gain $90.
B)Debit Foreign Exchange Loss $90; credit Sales $90.
C)Debit Accounts Receivable-Kagome $90; credit Foreign Exchange Gain $90.
D)Debit Foreign Exchange Loss $90; Accounts Receivable-Kagome $90.
E)No journal entry is required until the amount is collected.

Accepted Answer

The change in exchange rate from the sale date to December 31 results in a gain. The receivable increases by $90 (1,500,000 yen * ($0.00843 - $0.00837)).

Question 12

Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

Accepted Answer

Foreign exchange rates are affected by various factors such as economic growth, inflation, interest rates, political stability, and international trade, among others. These factors can cause fluctuations in exchange rates, which in turn affect cross-border transactions and trade competitiveness.

Question 13

When a U.S.company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency,the foreign exchange rate used to record the sale is the exchange rate:
A)Thirty days from the date of sale.
B)At the end of the seller's fiscal year.
C)At the end of the buyer's fiscal year.
D)On the date final payment is made.
E)On the date of the sale.

Accepted Answer

The foreign exchange rate used to record the sale is the exchange rate on the date of the sale. This is because the rate at the time the sale is made determines the value of the transaction and the amounts to be received in the foreign currency. The rates may change over time, but the initial rate used for recording the sale should reflect the actual value of the transaction on the date it occurred.

Question 14

Maroon Company sold supplies in the amount of € 15,000 (euros)to a French company when the exchange rate was $1.15 per euro.At the time of payment,the exchange rate decreased to $1.12.Maroon must record a loss of $450.

Accepted Answer

Maroon Company will record a loss because the value of the euros received has decreased in US dollars due to the change in exchange rate. The loss can be calculated as follows:

Original amount in US dollars = €15,000 x $1.15/€ = $17,250 
Amount received in US dollars = €15,000 x $1.12/€ = $16,800

Loss = $17,250 - $16,800 = $450

Question 15

On June 18,Wyman Company (a U.S.Company)sold merchandise to the Nielsen Company of Denmark for €60,000 (Euros),with a payment due in 60 days.If the exchange rate was $1.35 per euro on the date of sale and $1.14 per euro on the date of payment,Wyman Company should recognize a foreign exchange gain or loss in the amount of:
A)$60,000 gain.
B)$60,000 loss.
C)$68,400 loss.
D)$12,600 gain.
E)$12,600 loss.

Accepted Answer

The first step is to convert the sale amount of €60,000 to US dollars using the exchange rate of $1.35 per euro, which gives us $81,000. The payment due in 60 days is then converted using the exchange rate of $1.14 per euro, giving us $68,400.

To determine the foreign exchange gain or loss, we need to compare the US dollar value of the payment to the US dollar value of the sale. The US dollar value of the payment ($68,400) is less than the US dollar value of the sale ($81,000), so Wyman Company has a foreign exchange loss.

The amount of the loss is calculated by subtracting the US dollar value of the payment from the US dollar value of the sale, which is $81,000 - $68,400 = $12,600. Since this is a loss for Wyman Company, the answer is E, $12,600 loss.

Question 16

A U.S.company makes a sale to a foreign customer receivable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:
A)Of sale using a projected estimate of the U.S.dollar value at payment date.
B)Of sale using a 30-day average U.S.dollar value.
C)Of sale using the current dollar value.
D)Of sale using the foreign currency value.
E)When payment is received.

Accepted Answer

The correct answer is C) Of sale using the current dollar value. According to U.S. GAAP (Generally Accepted Accounting Principles), foreign currency transactions should be recorded at the exchange rate prevailing on the date of the transaction. This means that when a U.S. company makes a sale to a foreign customer, the sale should be recorded using the exchange rate between the U.S. dollar and the foreign currency on the date of the sale.

Question 17

Foreign exchange rates fluctuate due to changes in all but which of the following:
A)Political conditions.
B)Economic conditions.
C)Supply and demand for currencies.
D)Expectations of future events.
E)Whether the companies prepare financial statements under U.S.GAAP or IFRS.

Accepted Answer

Whether the companies prepare financial statements under U.S.GAAP or IFRS is not a factor that affects foreign exchange rates. All the other options, political conditions, economic conditions, supply and demand for currencies, and expectations of future events, can affect foreign exchange rates.

Question 18

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound.At the year-end balance sheet date,the exchange rate increased to $1.69.Kim must record a gain of $600.

Accepted Answer

Kim Manufacturing would actually record a loss of $600 due to the strengthening of the US dollar against the British pound. The calculation is as follows:

- At the time of purchase, Kim incurred a liability of £20,000 x $1.66 = $33,200.
- At the balance sheet date, the liability is still £20,000, but it is now valued at £20,000 x $1.69 = $33,800.
- The difference in value is a loss of $33,800 - $33,200 = $600.

Question 19

Marshall Company sold supplies in the amount of € 25,000 (euros)to a French company when the exchange rate was $1.21 per euro.At the time of payment,the exchange rate decreased to $0.82.Marshall must record a:
A)gain of $9,750.
B)gain of $20,500.
C)loss of $9,750.
D)loss of $20,500.
E)neither a gain nor loss.

Accepted Answer

Since the exchange rate decreased from $1.21 per euro to $0.82 per euro, it means that the euro has gained strength against the dollar. Therefore, when Marshall receives payment in euros, the value of the euros will have increased in relation to the dollars they originally recorded as revenue. This means that Marshall will have to record a loss on the transaction.

To calculate the loss, we first need to convert the original sale amount to dollars:

€25,000 x $1.21 = $30,250

Then, we need to convert the payment amount to dollars using the new exchange rate:

€25,000 x $0.82 = $20,500

Finally, we calculate the loss:

$30,250 - $20,500 = $9,750

Therefore, the correct answer is C, a loss of $9,750.

Question 20

To prepare consolidated financial statements when a U.S.parent company has an international subsidiary,the international subsidiary's financial statements must be translated into U.S.dollars.

Accepted Answer

According to U.S. Generally Accepted Accounting Principles (GAAP), if a parent company has an international subsidiary, the subsidiary's financial statements must be translated into U.S. dollars before they can be included in the consolidated financial statements of the parent company. This process is commonly referred to as "foreign currency translation."

Quiz 16: International Operations

If the exchange rate for Canadian and U.S.dollars is 0.7382 to $1,this implies that 2 Canadian dollars can be purchased for $1.48 U.S.dollars.

Multinational corporations can be U.S.companies with operations in other countries.

The currency in which a company presents its financial statements is known as the:

If a U.S.Company's credit sale to an international customer allows payment to be made in a foreign currency,the same exchange rate must be used for the date of sale and the cash payment date.

Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound.At the year-end balance sheet date,the exchange rate increased to $2.76.If the liability is still unpaid at that time,Kreighton must record a:

If a U.S.company's credit sale to an international customer allows payment to be made in a foreign currency,the sale transaction is recorded using the exchange rate on the date of sale.

The price of one currency stated in terms of another currency is called a foreign exchange rate.

All of the following statements relating to accounting for international operations are true except:

If the exchange rate for Canadian and U.S.dollars is 0.82777 to 1,this implies that 3 Canadian dollars will buy ________ worth of U.S.dollars.

The price of one currency stated in terms of another currency is called a(n) :

Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

When a U.S.company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency,the foreign exchange rate used to record the sale is the exchange rate:

Maroon Company sold supplies in the amount of € 15,000 (euros)to a French company when the exchange rate was $1.15 per euro.At the time of payment,the exchange rate decreased to $1.12.Maroon must record a loss of $450.

A U.S.company makes a sale to a foreign customer receivable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:

Foreign exchange rates fluctuate due to changes in all but which of the following:

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound.At the year-end balance sheet date,the exchange rate increased to $1.69.Kim must record a gain of $600.

Marshall Company sold supplies in the amount of € 25,000 (euros) to a French company when the exchange rate was $1.21 per euro.At the time of payment,the exchange rate decreased to $0.82.Marshall must record a:

To prepare consolidated financial statements when a U.S.parent company has an international subsidiary,the international subsidiary's financial statements must be translated into U.S.dollars.